Question

Steve, age 38, spent the first six months of the current year working as a financial planner for Question Capital Management. He took a new job out-of-state with Investments, a financial planning firm. He feels as though he can become a partner at the new firm within five years. His only regret is that he was required to move from Texas, his home state, to Vermont. Steve had the following items of income and loss in the current year:

Salary (combined for both jobs): $60,000
Long-term capital loss: $500
Short-term capital loss: $4,500
Qualified moving expenses (paid by Steve): $4,000

1. What is Steve’s adjusted gross income for the current year?

$51,500

$52,000

$53,000 $56,000

2. Bonnie, a widow, elected to receive the proceeds of a $100,000 face value insurance policy on the life of her deceased husband in ten annual installments of $11,900 each including interest (beginning last year). In the current year, she received $11,900, which included $1,900 interest. Bonnie dies in December of the current year after collecting the current year’s payment. What is the amount subject to income tax on her final tax return? $0 $1,900 $5,000 $6,900

Answer 1

Answer-

1)Steve's adjusted gross income is $56000(Working Note)

Working Note

Set off of Capital Losses: The Income Tax does not allow Loss under the head Capital Gains to be set off against any income from other heads – this can be only set off within the ‘Capital Gains’ head. Long Term Capital Loss can be set off only against Long Term Capital Gains. Short Term Capital Losses are allowed to be set off against both Long Term Gains and Short Term Gains.

Fortunately, if you are not able to set off your entire capital loss in the same year, both Short Term and Long Term loss can be carried forward for 8 Assessment Years immediately following the Assessment Year in which the loss was occured.

So Steve's Adjusted gross income= Salary-Qualified moving expenses

=$600000-$4000

=$56000

Answer 2

Amount subject to income tax on her final tax return =$0.

Reason- AmountReceived from insurance policy on death of the person is not taxable .This amount is exempt under income tax so no amount is required to be shown in income tax